Making Cents of Allowance | Bonus

Mackenzie and Suzanne make 'cents' of some of the most-asked allowance questions in this bonus episode. 

Transcript

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Hello, welcome to the Science of Parenting podcast, where we connect you with research based information that fits your family. We'll talk about the realities of being a parent and how research can help guide our parenting decisions. I'm Mackenzie Johnson, parent of Two Littles with their own quirks, and I'm a parenting educator. And I'm Suzanne Bartholomae, and I'm an associate professor with interest in helping people increase their financial security and I am the parent of a high schooler. Yes. And we are here on today's little bonus episode coming at ya with a little extra content to talk all about allowance. Oh, Mackenzie. We can’t not cover this. Right? I think I think that probably most listeners wanted us to start with this episode, probably. They’re like, But seriously, you're not going to talk to us about money and not talk to us about allowance? No, we're going to. We were. We're going to. So I thought it was fun when I mean, putting together some of the tidbits here in the research that one of the things that really stood out to me was thinking about allowance specifically as a form of financial socialization, which is what we were talking all about in the podcast season, was like, Yeah, allowance. And I also learned the word pocket money. Why did I not know? Now I feel like I hear it everywhere, like on TV shows, but like Allowance, a.k.a. Pocket money. Yeah, but it's a form of financial socialization. Of course it is. It is. It's the perfect illustration of a parent and child engaging in a financial socialization process. Right. And so the big challenge is how to how to make that process stick and make it healthy. Right. Our goal of financial socialization is to impart healthy values and norms around financial behavior. And so to be able to make sure that this experiencial learning theory or not theory, activity, of allowance is to make sure that it sticks and that that it's learned. Right and it's experiential, that they're just like they're just trying it out. Right? Like instead of us telling them like, you should save some money as long like alongside spending some, it's like it's experience because they're doing it like, here's how we're practicing it. And I thought it was really interesting. And some of the stuff you sent me, like the research around allowance I had assumed. So I'm actually like looking right here based on the panel study of income dynamics. The majority of children in the U.S.. Ages 6 to 15 do receive an allowance and that allowance is common across many demographic and social economic groups in developed countries. So it's not necessarily related to like family income or education. I always assumed it was. I assumed that like families that maybe had more income were more likely to do allowance. But that's not what the research tells us. Yeah, no, it doesn't. It's the research. Spoiler alert the research is not definitive in terms, Well, in the sense of what you just described, that, yes, there's no real pattern when it comes to demographics like socioeconomic status, education, which we might expect. Mm hmm. That that is. Yeah. There's no definitive pattern there. So and then the results, which there's, you know, the research on allowances have looked at a variety of different financial outcomes like savings, credit card use and you know, that responsibility. Just being financially responsible. Then there's also research that's on health outcomes, things like risky behaviors in adolescence, like smoking and binge drinking, smoking cannabis, gambling. And then there's also obesity research. But again, the research is, there's, it's there's research is so mixed some finds positive association between giving an allowance and some of those health and financial outcomes. Some show a negative association, that it actually harms, you know, the outcome or no, no, no impact at all. So there's a spoiler alert. Yeah, yeah, yeah. Getting ahead of us, giving everything away, Suzanne. I'm sorry. I'm sorry. Should I have not done that? Now people are just going to hit pause and let's just go on with your day. Yeah. No, wait. We're going to tell you the specifics. Okay. Hang with us. Yeah, right, exactly. Yes. But it is important to consider. Yeah. And it is important for us. I mean, I talked about it and, you know, in our podcast episodes throughout this that's this that season on finances that I have like I don't know where I sit with it with my kids and parenting. And I'm like, Oh, you know, maybe I don't do this or okay, maybe I actually do this more than I thought I did. And so thinking about specifically whether or not to give allowance and how to do it, I feel like is the decision I'm at with, you know, my oldest and my co-parent and I have been talking about of should we do allowance? How much allowance? Should it be tied to chores, Should it be? And like you used the word mechanics when I was telling you this and I was like, that. I've been really worried about the mechanics of allowance, and so I'm excited to share a little bit about the mechanics, but also share kind of about that bigger picture too. Yeah. So when we had that conversation, Mackenzie, I asked you, why are you giving allowances? And I was like, uh... Right? I do have a few reasons. So, one, I want to reduce the pestering, right? So, like, for our own well-being, of just like, Can I have this? Can I have this right? We've talked about “the gimmies.” and like to be able to say to my kids, like, do you have your money with you? If you'd like to get it. Like, that's not on my grocery list, but you could get that if you'd like, if you have your money. So part of it is that and part of it is the Yeah, learning like the value of how much something costs and that so that when they're adults, they're not like coming in blind. And then yeah the values around like saving and sharing and spending with intention, planning and that they can try that out when the consequences are pretty low. So the reasons that we think about allowance. Those are all good reasons, right. And parents are all differently motivated. And as you said, there are a lot of great outcomes that could be associated with with giving an allowance. And I think the giving, you're just thinking about the giving and do I do it, like I said, the mechanics, and not like maybe the process that supports this financial socialization activity. Mm hmm. And this was the thing that I thought was so important when you, Yeah, I was coming, into this episode like, I want to look at the mechanics of it, like the how we do it, and then, yeah, as you were sharing so much of the literature with me that the thing, yeah, the process part of it that you were talking about was more important. And so yeah, we had that citation from the Consumer Financial Protection Bureau, which new bestie, didn’t know until we did our season How important, how much I like them, but that they showed that research shows that receiving an allowance when that allowance is combined with parent oversight in conversations around the money, around saving, around budgeting that that has a greater impact on adult savings than just the allowance alone. That was my like, oh, I missed the point there. Right. And if the listeners have been, if they heard any of the earlier podcasts about discussing financial socialization and the difference between like the implicit, which is like you don't talk to them about it and they just observed, versus the explicit where you give actual instruction, you have them participate with you, you have discussions, you want to be explicit in your financial socialization, but by giving an allowance and I would lean on the the evidence that you just shared that if you provide guidance, maybe you don't just give an allowance. And I think we talked about this, that you you negotiate the allowance. What's the amount, right? You discuss it, you figure it out together. What's the scheme? How much do you get? How often do you get it? Do you get raises? And then that piece, is it conditional? Right. Yeah. And so by having the, and then you have a reflection on giving the allowance, right. Like how did that go that you spent all of your money on a, on a new T-shirt or a pair of sneakers? Are you happy with that? And so it increases the likelihood that the learning happens, that they internalize the lessons that you want them to learn. And I think it's an important message for parents is that just giving an allowance as an act because you want to get rid of the pester power because you’re tired of having to be responsive in the store. That's one reason. But you want to give you know, you want to really teach them something and impart your values and your goals. And this is an opportunity to do that. So as an example, you get your allowance but you must save half of it. Mm hmm. That is imparting a savings goal. And then that's a long, that's a norm that gets made, it's internalized for your child as they go forward. So that's the evidence I would lean on. Again, it's mixed. It's not definitive, but I think that it makes a lot of sense. Oh, absolutely. That you have that reflection and what we know about kids learning. Kids learn through opportunities. Mm hmm. And yeah, going back to that experience, right? That's what allowance is. It's the chance to, I mean, part of what it is, is they're trying it out. They're practicing some independence of money. And yeah, if they do, right... blowing all your money on a T-shirt when you're 12 is different than blowing all your money on a brand new car that you can't afford the monthly payment on when you're 25. Right, Right. It's that environment piece that we’ve talked about. Mm hmm. Right. And and, you know, I think that and another thing that maybe parents could consider is like, when is the child ready? Have they expressed an interest in wanting things, in being at the store and opening up the conversation? Right. It might be that their household and what your household spends money on looks different than their neighbors, like maybe your neighbor or your friend from school has, you know, this brand of sneakers or they have this car. And, you know, there's all sorts of, I guess, comparisons probably that happen. Yeah, right. With the peer pressure given the age. But I think that when the child's ready, which would depend on their age, you know, their ability, how they're kind of where they are, that you you take that into consideration as well. But really there's a lot to consider. Yeah, Yeah. That motivation piece. Right. So we talked a little bit about, you said the pester power, I mean the pester, the pestering situation, right? And so getting some peace from that nagging, we want it to be for learning, right, for financial socialization purposes. But as parents, parents is a lot about threatening and like, I'm going to take that away from you, or bribing, right? And so allowance can be used that way. Right. It's a power. It's a tool for power over your child. I hate to say that. Right? But like, if you get up and you get ready on time to go to school, I will give you an allowance this week. I will give you a dollar every day you do that. Yup. That's us trying to make our child compliant. And so it's - what it might do if it works well is that installs- instills like a child getting up and getting ready for school every day. Even when you stop the allowance and you maybe shifted. I don't know. Yes. Yeah. Well, and it is interesting to think about and not in a like, you should never in like a shaming kind of way, but like understanding if that is a part of your decision and how that either like aligns with your parenting style or values or doesn't. Right. And considering that, because I've definitely done the like, I mean, like not in crisis because that's more dramatic than it actually was, but like, we're in a hurry or we have somewhere to be or this has to happen like non... we just got to make it happen of like, I will give you a dollar if we blank and then we go right now, like, I've done it, I've done it. Oh yeah. Right. And so like realizing again, not that like,“I would never,” “you should never.” But like, is that in alignment with my values and like the long term financialisation goals? And like, okay, yeah, I did that. Let's say like, I didn't actually do it yesterday though, could. But, like, let's say I did that yesterday. Is that the exception or is that the rule? And yeah, I think giving that reflection and thought to it is an important part of it. Yeah. And I guess again, thinking what's your motivation? How are you going to use an allowance? And most parents, when you ask them the most common reason American parents give is that I'm doing it so that they become better financially, you know, financial humans or financially responsible adults. I want them to learn how to save and how to spend. Mm hmm. Right. And so so that's a big piece of it. You know, the whole conditional versus unconditional allowance. We should probably talked a little bit about, right? Yes. Okay. Because so this was like my big question. This is my big hang up when I'm like, what does the research say about allowance? Should it be so conditional being like, you can have your allowance, whether it's weekly, however often. You can have your weekly allowance if all your chores are done. Or should it be like no, chores are just a thing you have to do? Like allowance is not tied to it specifically? And that has been like the question on my mind. Like I said, I wasn't very worried about the like, oh, I should reflect and give it thought. Now I'm thinking about that. But this was my question. So what does the research tell us, Suzanne? Well, again, it's not definitive. It does not help us, as parents know that we should give conditional or unconditional. There is no strong body of research that says it makes a difference. Mmhmm, yeah. Some is like, you know what? Well actually you gave me some like actual citations that I can look at. So in one study, the effect of allowance in exchange for chores or other behavior was not significantly different, in contrast with the like, Yeah. Earned versus unconditional. And then there was also like basically, I literally underline this,“It does not appear that making an allowance earned has any bearing on future financial behaviors, at least not above just the allowance itself does.” So I was like all hung up in this like conditional/unconditional. And it's like actually, whether or not you do allowance actually seems like it's more of the bigger deal and whether or not it's associated with that yeah, like the explicit teaching. That's more important than the conditional/ unconditional situation. Yeah, yeah, yeah. And so I think a lot of parents, if you ask them about like, well, do you pay your children for household chores? A lot - many - parents will say, no, that's something that they have to do. Just being a member of this household, no one pays me to do the dishes or take out the trash. Then why should we pay? Why should I pay my other family member to do it? Right? So so a lot of parents will use the scheme where you do a basic set of chores as part of your expectations of being a member of the household. But then we pay you for projects. So I need some the lawn raked, right? I need the leaves raked or I want the baseboards dusted and cleaned up and I'll pay you, you know, a dollar an hour or whatever it might be. And so it's kind of looking at allowance is like, is it a wage or is it a gift? Yes. Right. So some parents are just like, I just want to give my child some money so that they can have money to spend. And then others, again, are going to put that condition on it. Right. And so and there's a lot of different ways, and my sense, I mean, I should check with you. My sense is that it It's not so much about the how like we said, that whether... Yeah, okay, I’m going to slow down for a second. It's not so - I'm getting ahead of myself thinking in all this. The, it's not so much of the how, right? Not so much the mechanics. Because it could be like, task-based, like you were talking about. Like if you - I remember one that was like we could like, draw from the jar, like we have the popsicle sticks growing up kind of thing. And sometimes it was like a punishment thing, but sometimes the jar was also used as like a, okay, you get five bucks if you do the task you draw. One of them was scrubbing the garbage cans. That's like something that needs to happen sometimes. Well, it's like inside of the garbage can gets yucky and... or the outside even. And so that was like a task based thing we could like, get money for. And so, yeah, you can do like, task based. That’s deep. I know like a yucky one. Deep. Yeah, that's a deep one. Right. You lived in, You grew up in a very clean household, I think. Well, that's neither here nor there. I'm just going to leave that. Yeah. So, like, you can do task based allowance, like, Yeah, like you said, like wages for earned work or Yeah. Or like you could do weekly or you could do monthly or you could do... right. And so like you can choose what makes sense for you. And genuinely I'm even like, for some families it might be a decision around like, okay, well we get paid once a month, so we'll do it once a month or... right? And so. Yeah. That ‘how’ isn’t as important. And I feel like that's often, you know, what I was caught up in, like I said, like the how we do it, but it's more doing it with intention. Yes. Yes. And just, and negotiating with your child. What the ‘how’ What the ‘how’ is. So is it a weekly payment? And I've seen parents maybe do weekly for younger children and then maybe monthly because they're ready to step up their money management. Yeah. Do it monthly. Right. And so but you know, do we make - do we make the household chores baseline, and then we pay on a project basis? Things, you know, some parents are like, you know, if we treat it like a wage, do they get a raise? Right? You know, like it's kind of like the employment model. We're going to treat them as a wage and all of us love as employees like to get a bonus. So do they, are they doing really well for six months? And you're like, you know, you've been following through on everything and we're going to we're going to, I'm going to give you a $10 bonus and then you instill all this emotional loyalty. You know, love that, love that. Emotional loyalty. Yeah. So, yeah, exactly. Like I must unload that dishwasher. Like I'm gonna do it. Yeah. Yeah. That's awesome. So. Yeah, but thinking about the outcomes in terms of what again, a guided process, where it gets us in terms of financial socialization, it helps kids with goal setting, right? So if they want to purchase something, then they can set a goal. And financial goal setting we know is really important for financial well-being. Learning to plan, right? That's an executive function skill that we talked about earlier in the podcast, right? So being able to resist temptation, right. Like the impulse. Being good to your future self is how we like to put it. Yeah. Encouraging savings. We talked about that, being able to kind of make that that cost- benefit analysis of your choices. So I spend 10 hours doing chores around the house so that I can buy a pair of Nike sneakers or, you know, what do I give up by a purchase? If I purchase some candy, then a day later I want to purchase something else. It's like, Oh, no, I already spent it on candy. All right. So there's a lot of, I think, good lessons that are there. Yeah. In financial - in terms of allowances, again, it's not definitive how it works, but I think we've learned throughout this whole season that parental financial socialization is all about being very explicit, that that's going to be the effective style of parenting, being very instructional and then having a safe environment for kids to practice. And that's how learning is going to happen and how you're going to instill your your values. Absolutely. And I think it is important for us to also, so, Right. We're saying, like if we're going to do this, that's the thing we want to do, right? Do it with the explicit instruction. You know, I think we all, I mean, I don't want to say grazed over, but we but I feel like for a lot of parents, it's also a question of if, right? Like, yeah, should I even? And so I want to like pull us back for just a second of we did pull some literature, you know, you pulled some literature for us on that of... there, And honestly, the research is like, there's some benefits that the research shows and there's some potential drawbacks that the research shows. And so we talked about like the savings behavior as a potential benefit. One study found that children reported modestly higher levels of financial responsibility when they're like children and teens as well as other strategies. Another one found that like helping kids think about their financial behavior, made them more inclined to save. Right? So there's like, these were some potential benefits, but there were also potential drawbacks, right? Mm hmm. Mm hmm. Yeah, right. And so, like one of them said, a potential drawback was one study found that when we were receiving, when kids were receiving allowance as teenagers that they were, they were less and economically self-sufficient as a young adult. So it's like, okay, so then maybe the conclusion people made, it was like maybe the allowance actually made them more financially dependent than independent. And then another study found like, what's this one - that Kim and Chatterjee in 2013 found that young adults who received allowance as a child reported being more responsible for their finances, but also had greater credit card debt. Right. So and then you talked about the health one, like there was a study where, what where did you say that? Was that out of? It was from China. From China. Yes, and it was, yeah. And showed that there was a link between allowance and it didn't look at conditional or unconditional, it just looked at I think the amount of allowance and showed that, that there was a link to, there was a link to obesity. And I think that can be explained by the fact that kids are working autonomously in terms of their choices about food. So they might be buying soft drinks or buying unhealthy food and that's what's kind of linking it. So again, maybe conversations of how you're going to spend your money, right? If you're going to, if you decide to give an allowance and and I like that you backed us up in this idea of like, do you even have to give an allowance as a parent? No, you don't. You have the choice of just maybe being responsive for when if they ask for money, if they need money, that you give them the money. Mm. Right. And so I think there's a little bit of evidence to that shows that that scheme of just being responsive actually is associated with some positive outcomes. I think it was that study out of Italy. Right. That was on some risky behaviors that showed that the, just being a responsive, you know, money giver as a parent was affiliated with positive behaviors. Right. And so it was literally yeah, it was like, yeah, my child asks for... Yeah, providing money upon request was related to sorry, I'm reading this backwards. Find that providing allowance was related to engaging in risky behavior while doing the like,“Hey mom, can I have ten bucks to go to the movies?” That that was not as associated with risky behavior. Right. So yeah there's just so much. Like it's mixed, is really the way to say it. We're like watching the science in action. There's not like a very clear‘this is exactly what we know from the research.’ It's like, well, it sees some of this, we see some of this. And so there are potential drawbacks and potential benefits. Yes. And I don't know, Mackenzie, in terms of the history of your podcast, how many episodes you've had where you can't give clear guidance to parents because of science, is that, what’s your experience been? I would say some of like we did the, the bonus on baby-led weaning and we had a little of that there that like, okay, the science isn't totally clear on parts of this. Occasionally, but it's not that often more often we've been able to dig into research that is like long standing, which this is dorky, but like sometimes when we like, cite something, it's from like the seventies or eighties. It's because it was like, that was really foundational. And so now we're 30 years or 50 years into studying this, and now we know more. And this one just seems like the answer right now. We're watching science in action, and right now it's telling us like the the if like to allowance or not to allowance - mixed. Right. Right. And that’s science for you and and I think our field in particular around money, I mean they started studying allowances I think as early as like the sixties maybe like a study here or there. But in terms of really marshaling, like the replication of studies is what we want in science so that we can draw conclusions that are consistent and we are not there yet in our field. And I would say the field of financial literacy and capability really I think has been getting traction like in the last 20 years where there's been a lot more scholarship on this, this topic, including financial socialization. Yeah, Yeah. And that's important to understand too. Like, yeah, some things that we talk about in parenting are, you know, more longstanding and some things that are the research is still emerging. And yeah, like you said, that idea of replication. So in other words, like one study found this has have there been other studies that have also found it is really what that replication is. And so sometimes that just not enough time, right? Or like not enough attention or like funding or whatever is available on it. So it's important. Yeah. Yeah, yeah. And so like, especially like you mentioned panel study of income dynamics as being one of the longitudinal data sets that have been used in this field of research. There aren't a lot of longitudinal data sets that include this type of questioning of parents. There's not many that I know. So like big studies aren’t... where we're like, well, researchers, right? There's some studies that are just like huge national studies that are gathered regularly. But you're saying that there hasn't been a lot where this kind of topic like where financial practices and socialization has been asked about. Yes. Yes. That is that is the truth that, you know, we want to we want a randomized sample. Right. So these big studies, big national studies with like really deep pockets to perform these studies can afford to do these non-randomised studies where they get like a sample of parents who we have enough parents that we don't have a selection bias. So we don't know right now. Is there based on the current research, are the parents that are giving conditional allowance different than the parents who don't give a conditional allowance? Right. And so we do we want replication, We want replication by, you know, so that demographics, we can look at demographics, we can even change cultures. That's really ideal. You know, the economic stress literature for sure is pretty solid in terms of what causes stress. But yeah, this whole socialization and allowance piece we have to report it is not there yet. Yeah, it's still emerging, which I basically, what I take away from that as like a practitioner, you know, like a parenting educator and you know a like lover of the learning of a related to this. And as a parent myself, what I take away is like, okay, I can use this information, right? But like, this is a potential drawback. This is a potential benefit. And I can make my own decision about how it works for us, right? Yeah, right. Like we get to make. And that's honestly, that's always our goal on the podcast, right? Is like, we're going to share the research and information with you and you get to decide. And especially today, when the research is mixed, like decide what makes sense for your family, decide what your values are, decide the how that makes sense for you in terms of the how often and how we talk about it and the conditional or unconditional. Right, Whether it's tied to chores or something like you get to choose all of that anyway. And the research is really not giving us any like, you better, right? You better do it this way. So much beyond the pairing it with the guidance and the explicit instruction part, right? Yeah. And the why and then the last thing we would add is like the why are you doing it? right? Why? Is it because you're using it as a financial socialization tool, which again, is the best, like a really great illustration of like, I am going to give my child some money to manage, we're going to talk about it and negotiate it. And ideally, the outcome will be that they form these healthy habits with money and some of my values are instilled in them along the way. Yes. So, yes, absolutely. Well, awesome. Oh, wait, wait, wait, wait. The one tidbit that I had starred here is that I had a question about was how much allowance. I was like, okay, this was great. I'm so glad we talked about it. I'm like, Wait, people might want to know this. Okay, The amount of allowance is one of the questions I had. So there was a study in 2020, the average allowance payment was around$6.72 per week for the younger ages and then sometimes increasing it to more than $24 per week for older teens. So I thought that was interesting. So like younger kids was like 6 to 7 bucks. And then for older teens it was more like 24. But some studies also found that, so like the allowance was increasing with age, right? But some also found that allowance did not continue into the teen years. Oh, yeah. That like maybe that was when our kids start working and like having their own money and so then we don't give them allowance anymore was one of the explanations they offered. But I thought the amount of allowance, I thought that was good for us to tell on to because I was like, This is interesting because I also wonder that. Right. And that's another thing you're going to like, that's context to help you make your decision on what makes sense for your child and your family. I'm literally still toying with like, I don't know, my kids are young, maybe like a dollar a week? Just to practice, like, I don't know. And especially because they don't have like a lot of chores yet because they're little. So yeah, those numbers are context for you to make a decision, not“this is what you should do.” Right? Right. And it depends on where you live in your community and how often kids are going to have the opportunity to spend money. Right. And I mean, a dollar for your child is - That wants to buy a candy bar. Let's be honest. That's what my kids want to spend their money on. Is candy. Right? Yeah, right, Right. And with inflation, can they even do that anymore? I don't know. The gumball machine has gone up. Yeah, right, Right. So, yeah, the amount I think, it does the research does show that it raises, it increases with age and then sometimes tapers off. And I think part of that also is that a lot of teens start earning their own money. Mm. Right. And so they're no, parents no longer have to supplement their spending. Yes. Yeah. Yeah. So Okay. Well anything else you'd add about allowance, Suzanne? No, just that I don't think as we said, you know, the research is mixed and I think the important thing is to understand why you're motivated to give the allowance. And then if you do decide to give allowance, let's lean on the evidence that says make sure you negotiate with your child, you discuss it, and you reflect on it so that it is actually a learning experience. And that you get to that goal of financial socialization, of forming healthy financial habits and norms. Yes, helping our kids. That's the takeaway from this episode. Oh, we love that. And helping them become financially responsible adults. Right. We love that. Right. That's the goal. Financial independence and financial wellness, which we started the season with. Mm hmm. Mm hmm. So thanks for joining us today on the Science of Parenting podcast. Don't forget that you can follow us on social media, Facebook and Twitter@scienceofparent to see our content like this bonus episode in your social media feeds. So come along with us as we tackle the ups and downs, the ins and outs and the research and reality all around the science of parenting. The Science of parenting is hosted by Mackenzie Johnson, produced by Mackenzie DeJong with research and writing by Barbara Dunn-Swanson. Send in questions and comments to parenting@iastate.edu. And connect with us on Facebook and Twitter. This institution is an equal opportunity provider. For the full nondiscrimination statement, or accommodation inquiries go to www.extension.iastate.edu/diversity/ext.